With a tip of the hat to the legendary Joe Walsh, I believe that “The reader you are, the writer you get.” My professional career has taken me to Wall Street, Madison Avenue, Silicon Alley, Hollywood, Washington and the NYC sports and media scene. I dig into what is being said by newsmakers and the media on the “hot news” of the day and try to connect the dots. I am the editor of Proactive Advisor Magazine, the first magazine focused on active investment management. Click on “Follow” under the Author’s name or follow me on Twitter, David Wismer, @djwizmo

Goldman's Cohen: 'Look For More Market Upside--And Volatility--In 2014' (And Other Quotes Of The Week)

I had the privilege a bit over a week ago to attend an hour-long interview with Abby Joseph Cohen, senior U.S. investment strategist at Goldman Sachs. Cohen was the guest for a special primetime edition of the Bloomberg Surveillance radio program, hosted by Tom Keene and Michael McKee.

Ms. Cohen is also President of the Global Markets Institute and a partner at Goldman, which she joined in 1990. She began her career as an economist at the Federal Reserve Board in Washington and prior to Goldman specialized in quantitative strategy and economics at other major financial firms. She is known on The Street for her deep economic knowledge and fundamental macro analysis–and also for getting some major market calls both right and wrong. She represents a fundamental investing point of view within Goldman, focusing on intermediate and longer-term trends emanating from: the global economic outlook, corporate performance (especially global companies), and how assets are priced from a valuation standpoint.

The interview covered some very broad territory, as Cohen reviewed analysis and data from Goldman’s hot off the press “Global Themes and Risks” November client presentation. The major takeaway was Cohen’s (and Goldman’s) continued generally optimistic outlook for a slow but steady ramp up in global growth and a commensurate positive view of the equity markets. Of course this was couched in terms of the appropriate caveats: that Washington does not do something extremely foolish and there are no black swan global economic or political shocks.

Among many compelling points during the discussion, one specific analysis was rather interesting for those trying to justify the continued ramp up in the U.S. equity markets. Cohen currently thinks U.S. equities are not overvalued, especially in comparison to the late 1990’s. She introduced a statistic which basically says that the increase in the price of the S&P 500 index over the past 13 years has not kept pace, by a long shot, with the growth in U.S. GDP and corporate revenues/profits: nominal GDP is up 73% and S&P operating earnings are +99%, while the S&P 500 index is only up about 18% over the same time frame.

Further, at 15.9 x 2014 median corporate U.S. EPS estimates, the S&P is undervalued, she says, when looked at in the context of periods of comparable low inflation.

That said, one worry point for Cohen is the relative weakness in R&D spending by U.S. companies, both over the last decade and especially since the financial crisis. According to World Bank numbers, the U.S. ranks 9th among nations in R&D expenditures. Another troubling factor is the wage and employment gap in the U.S., where unemployment among younger, lower income, and the least educated segments is, according to Cohen, a disturbing and “disgraceful” trend. She does, however, see anecdotal reports of more hiring coming into the marketplace and expects 2014 to see a better employment picture overall, helping to rectify what she calls “the most sluggish post-recession labor recovery we have ever had.”

On a more positive note, Cohen sees improvements in the debt ratio for U.S. households as a good leading indicator and expenditures on housing, home renovations and autos as encouraging. HH debt ratios, she says, are approaching 1980’s levels now, which is a heartening data point versus the unprecedented pre-recession household overleverage.

The interview ended with a discussion of Washington and the Fed, which provides a nice segue into the market’s recent behavior. Cohen had glowing praise for outgoing FOMC Chair Ben Bernanke and feels Janet Yellen is experienced, very capable and an excellent choice to follow Mr. Bernanke. Yellen received the nomination for chair of the Federal Reserve by the Senate Banking committee last week, which was the first hurdle to cross in the process.

The Street certainly demonstrated again last week its continued fondness for the prospects of “The Yellen Fed,” setting new all-time records yet again with the Dow’s first close above 16,000 and the S&P 500 finishing above 1,800 for the first time Friday. On the week, the gains were modest but encouraging after some uncertain action mid-week: the Dow put in a 0.6% move higher, the S&P +0.4%, and the Nasdaq + 0.1%.

Sentiment and tapering concerns were also helped by comments out of Atlanta Fed President Dennis Lockhart, who said in a CNBC interview Friday, “We are going to remain very accommodative for quite some time, in all likelihood a number of years.”

Let’s take a quick look at what else they were saying this week.

–“We are pleased to have concluded this extensive settlement.” –JPMorgan’s Jamie Dimon, on the record $13 billion settlement reached with the Justice Department on the long-simmering mortgage securities settlement. (NY Times) Forbes said of the deal, “That’s painful, but $13 billion is still better than (in JPM’s eyes, at least) the prosecution of one of its top executives or an ugly, public court battle.”

– “For Apple, this case has always been about more than patents and money. It has been about innovation and the hard work that goes into inventing products that people love.” –Apple statement to AllThingsD on the jury award of some $290 million from Samsung regarding patent infringement. Most observers agree the story of the battle is far from over and Samsung noted that it was “disappointed by today’s decision, which is based in large part on a patent that the U.S. Patent and Trademark Office has recently deemed invalid.”

–“Mr. President, take this website down.” — Science, Space, and Technology Committee Chairman Lamar Smith (R-Texas) in hearings regarding Healthcare.gov and its potential impact on “the safety and security of the personal data of Americans who have used the Obamacare website.” Smith’s comments and press release were based largely on testimony from online security experts who overwhelmingly indicated that the website was vulnerable to identity theft attacks.

– “I want to thank all the people at CNBC who have been with me on this journey, and of course the viewers and investors everywhere for making me love every minute of it.” –part of Maria Bartiromo’s statement on leaving CNBC for the Fox Business Network, after some twenty years at the network and “a front row seat to some of the most important economic stories in the world.” (mediabistro.com)

–“This is a legacy of a man who could have retreated to a life of luxury and ease, but he chose to live a life in the arena, sailing sometimes against the wind, sometimes with it.” –President Obama in remarks commemorating the 50th anniversary of President John F. Kennedy’s death. Mr. Obama and the First Lady joined Bill and Hillary Clinton and Kennedy relatives at several ceremonies, including one at Arlington National Cemetery. (NY Daily News)

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.